It said the militants were gunned down in Dellys, 80 kilometres from Algiers. Two other Islamists were captured and two Kalashnikovs and two automatic guns seized.
Algeria's army has stepped up operations in mountainous regions of the east, killing at least 32 armed Islamists this year, including the two today, according to an AFP count compiled from official reports.
Algerian police said they foiled a suicide attack targeting a police station in the eastern city of Constantine last week that was claimed by the Islamic State jihadist group.
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